Don’t worry! FY19 will be better than FY18; Nifty likely to hit 11,800 in FY19: Dhiraj Relli
The good thing which is in favor of equity markets is that micros are looking good and the earrings trajectory is looking better, Dhiraj Relli, Managing Director & CEO, HDFC Securities said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) After a 10% rally in FY18, how is FY19 likely to pan out for investors?
A) I feel that FY19 may actually pan out to be a better year than FY18. Why I say that because FY18 was a year of major events. We saw the implementation of GST, tariff war, global central banks started pruning their balance sheet which led to some reversal of liquidity.
FY18 has given about 10 per cent kind of return considering Sensex or the Nifty. To that extent, the gains that we saw were largely led by liquidity and in between saw spikes. We also witnessed buoyancy in the primary market, more money flew in from domestic investors etc.
But, keeping all that aside – we know that in the short term markets are driven by sentiments, in the midterm it is driven by liquidity and in the long term, markets are driven by earnings growth.
At the end of the day, what matters is the earnings growth. Indian market always does well when we see good micros and not so great macros. If we look at the macros six months ago, it was fantastic which not the case right now.
The good thing is that micros are looking good and the earrings trajectory is looking better. Historically speaking, when we look at earnings from the year 2001-2008, India Inc. registered good 18 percent CAGR in the earnings whereas from 2009 onwards to till last year, we have seen earnings growth CAGR of 4.5 percent.
In the last so many years we have not seen earnings coming in. But, in the last two quarters, we have seen that the trend is somewhat changing or reversing (fewer banks).
Growth which comes on the back of earnings is far more stable and far more sustainable than the liquidity-driven growth in the market. That is the reason why I believe that FY19 could be better. If we look at the collections in the GST, direct collections – both would be better.
Q) Any specific target you have for Sensex or Nifty for FY19?
A) We have a Nifty50 target of 11,800 which translates into an upside of 17 percent from current level.
Q) Any particular sector which is likely to hog limelight?
A) We are bullish on private sector banks as PSU is likely to lose market share. They are grappling with their own issues such as NPA or uncertainty around consolidation and finally the recapitalization.
We also believe that per capital income has been increasing will benefit consumer discretionary space. Select two-wheeler and four-wheeler space look good.
We believe that some of the asset management companies and insurance companies will also get the benefit of operating leverage. Insurance is one interesting sector for long-term from an investment point of view.
Q) How is the IPO pipeline looking for the FY19?
A) Whenever the market is doing good many listed companies try to unlock their value. The year 2017 or the FY18 was very good for IPOs. However, going forward, this trend is unlikely to continue.
Companies are also pricing the issue to perfection. To that extent, investors did not get any listing gains. Overall, I feel that the trend in primary markets will remain somewhat subdued and it will not be as great as it was last year. But, quality issues will sail through.
Q) What is your call on Public Sector Banks?
A) I think the biggest issue in the Indian market is grappling with NPA menace. This issue was always there but it got surfaced post the asset quality review done in the regime of Dr. Raghuram Rajan.
From there on, RBI and the government came out with various measure to solve the problem. The good thing is that we are at least recognizing these NPAs and they are coming into public domain otherwise they were always there which is a good thing.
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